Cssl august 5, 2011

Macro Economic Trends: Future Business
Environments

Marvin R. Clark
Managing Principal
Chief Economist and Investment Strategist

Exploring Supply's Future: Megatrends,Volatility and the Economy
A.T. Kearney Center for Strategic Supply Leadership at ISM
August 5, 2011, Chicago, Illinois

Monsoon Wealth Management, LLC

Our World Today
 Investment bubbles and depressed markets
 Foreign wars, deficit spending, and a double-dip recession
 Political unrest over power, wealth, and natural resources
 Growing surplus of human labor and migration issues
 Overleveraged western nations
 Global affluence migrating from west to east
 Climate change and unpredictable business interruptions
 Physical and cyber-terrorism threats rising
 Seven billion individual economies all wanting Twitter

MacArthur Park
By Jimmy Webb

CHORUS
MacArthur's Park is melting in the dark
All the sweet, green icing flowing down...
Someone left the cake out in the rain
I don't think that I can take it
'cause it took so long to bake it
And I'll never have that recipe again
Oh, no!

World Economic Forum - January 2011
An initiative of the Risk Response Network

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www.monsoonwealth.com

Historical Economic Perspective

U.S. Post WWII Economic Policies
Keynesian (John
Maynard ) Supply-Side
1933 - 1980 1981 – Current

 Higher Taxes  Lower Taxes
 Government Spending  Smaller Government
 Social Safety Nets  Free Markets
 Union Wages  No minimum wage law
 Universal Health Care  Few regulations
 Raise workers standard of  Buyer beware
living
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MAJOR CAUSES Of Post WW II Inflation
 Vietnam War 1959-1975
 Great Society Programs 1964-1968
 Baby Boomers entering the workforce 1967-1982
 Richard Nixon’s wage and price controls 1971
 Leaving the gold standard 1971
 The 1st oil embargo 1973
 Excessive money supply growth 1974-1979
 The 2nd oil embargo 1979
 Antiquated manufacturing facilities

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MAJOR CAUSES of Post WWII Deflation
 The information and digital age 1981
 Personal computers 1981
 Declining oil prices 1981-2000
 Declining interest rates 1981-2008
 Deregulation 1981 - current
 Non-union domestic and foreign labor 1986-2007
 Globalization 1989
 North America Free Trade Agreement (NAFTA) 1994
 Fiber-Optics and the Internet 1994
 Cheap Capital 2002 -2008
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Current Macroeconomic Analysis

Current Transfer Receipts and Government Current Receipts
 Personal current transfer receipts  Government current receipts (4–
(3–22) consists of income payments 27) is the sum of current tax
to persons for which no current receipts, contributions for
services are performed and of net government social insurance,
insurance settlements. income receipts on assets, current
 It is shown as the sum of transfer receipts, and current
government social benefits and surplus of government enterprises.
current transfer receipts from  Current tax receipts (4–14)
business (net) (see 2–6). consists of personal current taxes
Government social benefits (3–23) (see 3–1), taxes on production and
includes benefits from government imports (see 1–6), taxes on
social insurance funds and social corporate income (see 2–13), and
 assistance benefits from certain taxes from the rest of the world
other programs (4–18), which are mostly income
taxes received by the Federal
Government from foreigners.
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The Oughts' Decade “Punch Bowl”
 Cowboy capitalism
 Excessive banking leverage
 Exotic derivatives investment products
 Lax regulatory supervision
 Federal deficit spending
 Lowered underwriting standards
 Securitization
 Unfunded wars
 Massive tax-cuts

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The Oughts' Decade Five Bubbles

 Dot.com stocks
 Residential and commercial real estate
 Personal and corporate debt
 Blue chip stocks
 Commodity speculation

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2008: The Year Capitalism Died: Leading
Causes
 Bear Stearns
 Indy Mac
 Fannie Mae
 Freddie Mac
 Lehman Bros.
 Breaking the Buck
 TARP
 6% GDP contraction

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The New Normal
 An endless U.S. L-shaped recovery
 Multi-year U.S. consumer credit contraction
 Fewer U.S. public services
 Austerity and a reduced standard of living
 Global deflation and inflation, together
 Developed nations going Neofeudalism
 BRIC(hina), Emerging, and Frontier Markets

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Digitas' Proprietary Study Abstract
"Affluence in America: The New
Consumer Landscape

Digitas' Proprietary Study
"Affluence in America: The New Consumer Landscape

53% of the Once-dominant "Mass Affluent" ($100-199K
income) Now Consider Themselves Middle Class;

Rise of the "Class Affluent" ($200K + income) and the
"Emerging Affluent" (35 years old or younger)

The study reveals that the future of affluence is not like the past,
and that "mass affluence" has given way to the spending power of
the truly and the up-and-coming affluent -- the "Class Affluent"
and the "Emerging Affluent.“

"Affluence in America: The New Consumer Landscape"
The Mass Affluent ($100-$199K household income level) has
disappeared.

They don't have the leveraged spending power they once had and now
have to live on income alone. Not surprisingly, an overwhelming
majority (53%) classify themselves as middle class. They have been
replaced by:

 The Class Affluent -- earn $200K HHI or more yearly and 54%
classify themselves as upper-middle class.

The Emerging Affluent -- earn $100-$199K; same as the Mass
Affluent YET are under 35 years old.

The Rise of the Class Affluent (in a "class" by themselves):

Earns between $200K HHI (the minimum threshold for true affluence in America
according to our findings) and $1 million+ HHI annually.
Represents the minority -- only 8.5 million in a country of 307 million people.
Three tiers of Class Affluence.
 The Affluent -- $200K–$499K HHI -- The Creative Class: The Affluent are the
creative class. They are likely to work in creative fields or industries, like software
design, publishing, architecture, advertising, or journalism.
 The Wealthy -- $499K–$999K HHI -- The Money Class: Likely to work in
Finance and Consulting.
 The Rich -- $1 million+ HHI -- The Leadership Class: They are individuals who
run companies and influence industry. They command the highest incomes and
make decisions that affect many. They can be found in high-income careers, like
financial or legal services, or break-out industries like Internet properties/services
or real estate.

Emerging Affluent: 5.5 million people who are currently in the work force and on their
way to affluence.

 They have the same HHI as the Mass Affluent ($100K–$199K) but are younger, under
35.
 The Emerging Affluent work in careers that will eventually deliver affluence --
financial services, legal services, and engineering -- but they are still in the low to
middle management tiers.
 This group has all the attitudes of the truly affluent. They consider themselves opinion
leaders, follow trends, love to travel, and are passionate about food and dining. They
pursue both stylish youth-oriented brands like Scion, Diesel, and Samsung and true
luxury brands like H. Stern, Tiffany, St. Ives, and D&G.
 What sets this group apart from all others is their intensely digital media
behavior. Universally digital, members of this class use mobile devices for
communicating, consuming content, enjoying music, and gaming. They use social
networks and blog, and they prefer apps to 411 to research restaurants, recommend
products, or get deals from marketers.

America’s Outlook: 2011-2014
 Subpar GDP growth, probable double-dip recession
 Quantitative Easing III (QE III)
 Persistent high unemployment levels
 Decline in the middle class standard of living
 Rise in the affluent standard of living
 Loss of America’s AAA credit rating
 Extreme political and social unrest
 Unanticipated business disruptions
 Capital flight by business and the affluent

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Global Outlook: 2011-2014
 Hard Chinese economic landing
 Collapse in Brazil’s economy
 Greater regional political instability
 Realization of a “broken Japan”
 Greece defaults on their debt
 Implosion of the Economic Union and the Euro
 The next financial crisis

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Near-term Issues
 Local production and distribution of goods and services

 Cloud computing and new areas of layoffs

 Cyber-terrorism as a permanent way of life

 China’s operational satellite system in 2012

 Political elections and business scandals

 Public health

 Wikipedia

 The continuing unwinding of the 20th century

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Horizon Issues
 3-D printing and fabrication technology

 Declining Western economic clout

 Declining usage of nuclear power

 Peak oil

 Climate change

 Food security

 Further 21st century geo/political realignment

 International payment and settlement changes

 Bitcoin – an internet currency. Does it have a future?

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Pro-active Corporate Measures

 Create small working group, studying the USSR’s demise

 Create a F.D.I.C. insured financial institution

 Re-evaluate the value of your markets and products

 Scan for business innovation coming from other’s necessity

 Prepare a rolodex of opposition leaders in politically unstable

countries for business continuity

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Defensive Corporate Measures

 Anticipate volatile price swings in raw materials

 Anticipate disruptions in sensitive geo/political areas

 Be prepared to abandon markets and products

 Discount the overly optimistic Emerging Market thesis

 Discount 20th century data sets and behavior patterns

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Monsoon Wealth Management, LLC


Cssl august 5, 2011

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